Microsoft has invested $240-million in Facebook, resulting in a $15-billion evaluation for the social network. I fear that this might be the beginning of the end of the Facebook mania.
Personally, I would have preferred to see an investment by Google. It is a company I admire, and one that I trust to have a clear path and vision for its future, and thereby the future of my online experience. If Google was now sitting with a stake in Facebook, I would be more relaxed. There are clear ways in which the two companies can work well together, and the evaluation, although still nonsensical, would make a little more sense.
As it is, we have now pitted the two against each other, and the question floating on the web for the past two days is whether Google should be worried.
Why should Google be worried? What can pose a threat to the company? A decreased amount of eye time on its products, definitely. No matter what applications Google develops or acquires, its core business can be summarised in one word: advertising. The search is simply the means to the end. In order for the advertising model to work, it has to benefit, of course, the advertiser. And in order for that to work, the customer must be able to interact with the advertiser in a manner that is convenient and applicable.
Best way to do that? Offer adverts for products for which people are searching. Hence the presence of “contextual” ads on Google’s search results.
Anything else, by the way, is counterintuitive. If you click on an ad while browsing a site, that site has lost your attention. Imagine SABC3 running an ad that convinces you to switch channels and watch M-Net now.
Nevertheless, this counterintuitive model is admittedly rampant and successful, which I guess is good news for Facebook since so far it is the only business model it has.
But it is not a problem for Google, because Facebook acts as a driver to Google’s other products, anyway. Here are some ways how:
- 1. Google cleverly identified video as a great viral marketing tool. Its stake in YouTube, and plans to embed ads in the video clips, means that the more YouTube clips you share on Facebook, the more Google ads will be shown. For free.
- 2. Facebook allows the importing of “notes”. If you were to visit my Facebook profile, you would see an excerpt of this blog post as soon as it is posted. If you want to read the full post, you will be redirected to the Thought Leader site. Admittedly, Thought Leader does not host Google ads, but lots of other blogs do, and the extra traffic that Facebook brings to these blogs benefits Google directly. And remember, these ads are now contextual. By clicking on a note, you are showing interest in the subject covered in the note. And Google knows how to capitalise on that rather well.
- 3. A multitude of third-party applications drive traffic away from Facebook to more sites that host contextual ads. For example, an application can list the main headlines from a news site. Facebook does not host these stories — the news site, with its own advertising, does.
- 4. For good measure, Google released its own Facebook app that lists headline news stories as requested by you, or recommended by your friends. You can track any topic you like (eg “rugby”). I’ll leave it to you to guess what happens when you click on the link.
In addition, Google already has marketing relationships with 20 other social networks. Facebook and Microsoft have to run fast to keep up. They would have to move at supersonic speeds to get ahead.
But here is why Facebook should be worried. Now that it is official that Google will not have a stake in Facebook, it is free to push its own social network, Orkut. It has already had great results with this in countries like Brazil, and it will probably now up its game a notch.
I have previously argued that people are not going to migrate from Facebook because of the time and effort it would take to replicate the network elsewhere, but who knows what exciting gimmicks Google might throw our way? Although, Sergey Brin, Google’s co-founder said yesterday that “We don’t feel at a higher level that we need to own everything successful on the internet.”
But actions speak louder than words.
I think you are comparing two things that have very little in common: People need to use Google to go about their daily business; Facebook is a novelty, that isn’t necessary in anyone’s life, and novelties wear off.
Jackie,
My point exactly.
But Google has invested heavily in other apps that are “novelties”, like YouTube for $1.6 Billion. The sentiment seems to be that Google lost out by not managing to secure a successful bid for Facebook. But I disagree.
Well then I agree with you, but I don’t agree that YouTube is a novelty-type application. Unlike Facebook, it provides quite a specific/unique and necessary purpose on the web. Other than the applications on Facebook (which are completely meaningless), Facebook doesn’t provide much more than email.
Jackie,
Ahhh…. depends on how you define ‘novelty’ and how you define ‘useful’. How much time did you spend on YouTube yesterday? And how much time do you spend logged into facebook? And how many friends have you reconnected with because of Facebook? And hey, remember *I* am one of those friends.
Google IS going to push strongly into social netorking, since it seems to the one sure thing that is NOT a passing fad. It obviously won’t be via Facebook, so Orkut it is.
Do you really think it won’t be passing fad. I admit that it serves a purpose (useful), but it’s a narrow one: finding people that you have lost touch with! The communicating on it part is a fad! Maybe a more simple defined application will be developed for this purpose without all the teenage nonsense attached to Facebook. (I can’t stand getting all these little notifications of invitations to add applications.) Perhaps something more sophisticated and private that won’t make you feel obliged to add friends who you hardly know. Cause once you do this, then the privacy aspect is gone which defeats the whole point.
It’s interesting to see that Google has targeted ‘Facebook’ as there are 3 other massive websites of the same social nature, namely ‘Friendster’ and ‘Hi5′ and ‘MySpace’.
@Eric MySpace is not on the market, but Google has a $950 (or so) million dollar advertising contract with them, so in a way, they do own that space. Am not familiar with Hi5, but will check it out.
@Jackie: Facebook can be used to just find people you lost touch with, or it can be used as a powerful network/communication tool. Just this week, I have have had two high powered meetings with people who happened to be visiting SA and with whom I connected via Facebook. Both meetings, I believe, will be very lucrative. So I guess it all depends on how you use it.
Also, you can block requests for those annoying applications so you are not invited to a Zombie party ever again
Eve
Good point about the market, although the ‘Marketplace’ in Facebook isn’t too popular at the moment……….yet
I guess with Google’s billions, it’s only a matter of time……
Eve,
Personally I loath FB so I do not care if MS gets to invest more and absorb FB to the point that it evaporates from view.
As for Google, the previous days have seen them do some very strange downgrading of top bloggers sites because of their rules around paid links.
The way I perceived it is that Google is beginning to flex its muscles in a very Orwellian 1984 way.
And this is definately not good at all.
Hi from over here in OZ, Eve ….
Some great thoughts again Eve but little I can agree with, really. This, I can.
“No matter what applications Google develops or acquires, its core business can be summarised in one word: Advertising.”
Yes, it ALL about Ads and on a Global scale. And as an investor I have been following the “space” now for quite some time …. But it’s not just Facebook that Google should be concerned about. And for many “seeing is believing” and I guess the 2001 revelation in “The Disclosure Project” is a prime example.
http://www.cosmicparadigm.com/DisclosureProject.html
My research has told me of many Global Ads Networks that have been “forming” for (at least) 2 – 3 years or, more now and are possibly about to “launch” (I feel) in conjunction with the highly anticipated announcement of Facebook’s “own” Ads platform, they have called “SocialAds”. (November 6th)
Huge (Multi billion dollar) Co’s are involved and much has been written over here, (at IV), where I regularly post of “day to day” developments, as such. My “blog”
http://www1.investorvillage.com/beta/smbd.asp?mb=3240&pt=m
In relation to your headline “Facebook and Google: Who should worry?” (and in closing), I’ll quote to you the last line “thoughts” from within today’s (Cnet) news.com article, on the very topic …It says:
“The rumored “SocialAds” event will be the biggest announcement out of the company [since Facebook launched its developer platform in May], and its placement in the middle of New York’s AdTech conference guarantees that it’ll be high-profile.
There are few companies that could divert attention from Google. Facebook, unfortunately for Mountain View, is one of them.”
http://www.news.com/8301-13577_3-9806517-36.html?tag=nefd.blgs
Cheers! (LC)
I’d personally be more comfortable with Google being friendly with FB. For some reason I trust Google, but not FB, and not FB and Microsoft together. Today I changed my privacy settings in FB for the first time, just because I’m not quite sure what they’re up…